Where Your Paycheck Actually Goes
You negotiated a $75,000 salary. Your first paycheck arrives and you're puzzled — where did 28% go?
Typical breakdown for a single filer in a state with income tax, contributing 6% to their 401(k):
| Deduction | Amount |
|---|---|
| Gross biweekly pay | $2,884 |
| Federal income tax | –$430 |
| Social Security (6.2%) | –$179 |
| Medicare (1.45%) | –$42 |
| State income tax (~5%) | –$110 |
| 401(k) contribution (6%) | –$173 |
| Health insurance | –$150 |
| Net pay | ~$1,800 |
That's a 38% reduction from gross to net.
The average American worker's effective combined federal, Social Security, and Medicare tax rate on wages is approximately 23%. Source: Tax Foundation (2024) — Source
The Pre-Tax Advantage
A $200/month traditional 401(k) contribution:
- Reduces your gross by $200
- But reduces federal income tax withholding by $44 (at 22%)
- So take-home pay only drops by ~$156
You're putting $200 into retirement for only $156 out of pocket — an immediate 28% return.
69% of private-sector workers had access to employer-sponsored retirement plans in 2022, but only 52% participated. Source: BLS National Compensation Survey (2022) — Source
See also: tax withholding calculator, bonus tax calculator, and the tax estimator guide.
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